Investment abroad leads to gains in jobs, worker skill levels: Conference Board

But struggling companies should stay home
||Last Updated: 02/01/2011

Foreign investment by Canadian companies can lead to improvements in productivity, jobs, worker skill levels and other benefits — both for Canada and its companies — according to a Conference Board of Canada report.

"The strongest performing Canadian companies use direct investment abroad to improve their performance by accessing new markets, technologies, talents, suppliers and resources," said Danielle Goldfarb, associate director at the International Trade and Investment Centre at the Conference Board and author of Direct Investment Abroad: A Strategic Tool for Canada.

"Rather than detracting from Canada's economic activity, the evidence shows that investments abroad translate into overall long- term benefits for Canada and its regions."

Canadian acquisitions or expansions abroad yield overall benefits for Canada, its provinces and its cities. Improvements in productivity, jobs, trade, investment, tax revenues and worker skill levels are among the benefits, along with the potential for some relief from tight labour markets that constrain Canadian growth, said the report.

“Overall, direct investment abroad could mean — in the worst case scenario — a small drop in employment at home. Unskilled workers are most likely to be negatively affected. At best, direct investment abroad tends to increase jobs and improve skills and wages at home over the longer term,” said the report. “The effects on Canadian jobs are likely to be more positive and require less adjustment in the short term when activity abroad focuses on activities that are complementary to those at home or when (direct investment) is aimed at growth opportunities, such as accessing new markets.”

Some inequalities

However, not all investments are equally beneficial. If companies go abroad to access new markets or to undertake different activities than those at home, the benefits to Canada are likely to be greatest. However, where activities abroad replace Canadian-based ones — including mergers or acquisitions where duplicate jobs and activities in Canada are cut — some domestic workers could lose their jobs in the short term, said the report. And where there is a negative impact on jobs from direct investment abroad, those workers with fewer skills are most likely to have their wages cut or lose their jobs.

Moreover, companies that are strong performers in Canada are likeliest to benefit from direct investment abroad, whereas struggling companies should stay home — investment abroad is not a panacea for weak performers, found Direct Investment Abroad.

“Companies may invest abroad to be able to gain access to workers with needed skill sets. In certain sectors, skilled workers are in short supply and are pursued fiercely. Setting up in global markets may allow better access to that talent,” said the report. “For example, America’s Motorola accesses expertise globally via R&D centres in China, India, Australia, Canada, Singapore, the U.K., Argentina and other countries.”

Policymakers can facilitate the types of direct investment that are most beneficial, said the Conference Board. Most importantly, governments should create a favourable competitive environment in Canada through transparent regulations, competitive tax policies and investment in both education and infrastructure.

Canadian public policies should also eliminate barriers that discourage or penalize firms for investing abroad, said the report. For example, Canada should not impose a tax on repatriated profits that have already been taxed in other jurisdictions. Some foreign profits return to Canada in the form of dividends, while other earnings are reinvested elsewhere, generating future wealth for Canadian firms.

The full report can be found at (

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